My parents bought a new home in 1950 on the salary of a Marine non-commissioned officer who had served in two wars. We were fairly poor.
My first husband and I bought a new home in 1967 for about $23,000 on the salaries of a US Postal Service employee and a low-paid accounting clerk. My grandmother gave us the $1200 down payment.
In 1982 I bought a condo for $93,000.
Today in my neighborhood north of the Golden Gate Bridge the cost of a starter home is change short of $1M. The farmland surrounding Santa Rosa, an hour north, is being replaced by homes priced $300,000 and up. Who can afford these homes? What jobs do they have that pay the mortgage?
Homeowners in the San Francisco Bay Area consider their home an investment, a concept routinely applied these days to objects that are obscenely expensive because it is the single most valuable thing they own.
When did a home of your own, once affordable to even the poor, become an investment requiring two upper middle-class incomes to pay for?
What is the role of the mortgage subsidy, the tax deduction? It effectively reduces the cost of the house. Buyers are encouraged to pay more, reasoning that if the money doesn't go to the mortgage holder, it will only go to the IRS.
It used to be a bank would lend money (sell a mortgage) in an amount not to exceed 80% of the home's appraised value. Appraisals can be determined in two ways: (1) the recent purchase price of comparable homes or (2) actual cost to rebuild. The former method is very popular with those who directly profit from it (like the real estate industry), in that supports continually rising prices.
Rising home prices reflect what buyers are willing to pay. Many think that the pain of a horrendously expensive mortgage is balanced by the expected rise in resale value. This is where the notion of investment creeps in. They justify the monthly cost by the expected future profit when they sell. Accordingly they are willing to pay today's price.
And so house prices rise and rise and rise. Because buyers are willing to pay. And banks are willing to lend. And all expect the prices to rise.
And so they must rise—or else financial disaster will strike buyers, lenders, and other real estate businesses.
The constantly rising price of homes has impacted the quality of family life and the environment. It takes two full-time jobs to pay the mortgage leaving children without parents for 10+ hours a day. In order to get on the real estate bandwagon, buyers are willing to commute long distances, so farm land is converted to housing tracts. Freeways are built to lessen the commute. Gasoline is burnt to power workers to their jobs and back. Etc.
Entire communities are affected by this situation. Traffic and child care are obvious consequences. A more insidious one changes the makeup of the communities themselves: As homes are resold (at higher prices), poor classes of buyers drop out. The remaining two-income families lack the time and energy to participate in their communities. People become isolated.